Bulletin #14

Taxpayers Information Service - Rev. 5/87

Use of Regulation 11b Exemption Certificate by
Persons Engaged in Commercial Agriculture

It has come to our attention that improved information and coordination is needed by both dealers and farmers, in the application and use of the SALES TAX EXEMPTION CERTIFICATE FOR FUEL, TOOLS AND MACHINERY USED DIRECTLY IN AGRICULTURAL PRODUCTION as provided in Sec. 12-412(12), (18) and (34), C.G.S.

We are initiating a joint effort with the Connecticut Farm Bureau Association (CFBA) to improve the understanding of the sales tax exemption procedure and to expedite the actual exemption procedure through greater availability of sales tax forms and information to dealers, stores and farmers.

We trust you will find this Bulletin to be informative, and if we can be of any further help, please feel free to contact either this office or the CFBA office in Hartford.

Generally, persons engaged in Commercial Agriculture are not registered with this department as retailers holding Sales Tax Permits. Some may be registered with this department and have registration numbers issued under the Corporation Tax.

However, it must be remembered that the exemption applies only to persons engaged in "Commercial Agriculture" who are producing a product for sale in the regular course of their business. It is not applicable to persons raising produce, poultry or livestock primarily for their own consumption and who may occasionally sell something. They must be in the business of raising their product for sale and filing a 1040 Schedule F or comparable return with the Internal Revenue Service.

When filling out and issuing the Regulation No. 11b Exemption Certificate, the block designated for the Permit Number should show one of the following: (a) Sales Tax Permit No. (if purchaser holds a permit), (b) the Corporation Registration Number (if purchaser is registered), (c) the words Commercial Agriculture (if purchaser does not have a Connecticut Tax Registration Number).

The remainder of the certificate must also be completed in full including description of items being purchased exempt from tax; name and address of supplier (seller); check appropriate box as to where items are to be used and sign and date certificate.

The purchaser in issuing this certificate agrees to accept liability for any taxes due, if at a later date it is found that the items purchased do not qualify for the exemption.

The seller upon receipt of the certificate may sell the items covered tax-free. He is required to keep the certificate on file, together with any invoices involved to back up his exempt sales. If the purchaser is a regular customer, he may accept a "blanket" certificate to cover future purchases of the exempt items listed on the form. These "blanket" certificates must be renewed every three years.

Questions as to the taxability of any specific item may be addressed to this office, but preferably should be channeled through the Connecticut Farm Bureau Association in Hartford who will be updating their list of agricultural machinery, materials, tools and fuel, both taxable and nontaxable, which they will make available to members on a routine basis.

The following are extracts from the Connecticut General Statutes covering the exemptions generally applicable to Commercial Agriculture:

Section 12-412 (12) (A) Sales of livestock, rabbits and poultry of a kind which ordinarily constitute food for human consumption; (B) sales of feed, including the bags in which it is customarily contained, for livestock, rabbits and poultry of a kind which ordinarily constitute food for human consumption or are to be sold in the regular course of business; (C) sales of SEEDS AND tree seedlings or transplants sold by the state forester under section 23-23; (D) sales of fertilizer. Fertilizer shall include ground limestone, hydrated lime, insecticides, fungicides, seed inoculants, seed disinfectants and plant hormones, as well as other substances commonly regarded in the same category and for the same use; (E) sales of plants, including parts of plants, suitable for planting to produce food for human consumption or when such plants, including parts thereof or the product thereof, are to be sold in the regular course of business, including such items as seed potatoes, onion sets, asparagus roots, berry plants or bushes and fruit trees; (F) sales of equines, except horses racing at a commercial race track in the state of Connecticut.

Section 12-412 (18) Production materials. Sales of and the storage or use of materials, rope, fishing nets, tools and fuel or any substitute therefor, which become an ingredient or component part of tangible personal property to be sold or which are used directly in agricultural production or in the fishing industry or in an industrial plant in the actual fabrication of the finished product to be sold. For the purpose of this subsection, the raising of poultry and livestock shall be construed to be included in the term "agricultural production." Sales of and the storage or use of materials, tools and fuel or any substitute therefor, when such products are used directly in the furnishing of power to an industrial manufacturing plant or in the furnishing of gas, water, steam or electricity when delivered to consumers through mains, lines or pipes.

Section 12-412 (34) Machinery used in manufacturing or agricultural production. Sales of and the storage, use or other consumption of machinery used directly in a manufacturing or agricultural production process. The word "machinery" as used in this subsection means the basic machine itself, including all of its component parts and contrivances, such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, but excluding office equipment, or data processing equipment other than numerically controlled machinery used directly in the manufacturing process.

Repair or Replacement Parts For Machinery

The Statute has reduced the Sales and Use Tax rate to 5% for the sale of replacement and repair parts purchased exclusively for machinery used directly in the agricultural production process, effective July 1, 1986. The Department of Revenue Services has issued a certificate for purchases of replacement and repair parts at the 5% sales and use tax rate entitled "Sales and Use Tax Certificate for Purchase of Repair or Replacement Parts Used in Production Machinery at the Reduced Rate of 5%". For further information, refer to Bulletin No. 30, entitled "Repair or Replacement Parts for Machinery."

There is also a refund for sales or use tax paid by certain commercial farmers for repair or replacement parts purchased exclusively for machinery used directly in the agricultural production process. The effective date for the refund is any year beginning on or after January 1, 1986. The refund claim can be for an amount up to $7500. The Department of Revenue Services will be issuing an application for the refund entitled, "Sales and Use Tax Refund Application Repair and Replacement Parts For Production machinery". Form AU-739 may be obtained by contacting the Forms Section, Telephone number (860) 566-8168. For further information, refer to Bulletin No. 30.